The efficiency of competitive equilibria in insurance markets with asymmetric information
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Cited by (105)
Price caps and efficiency in markets with adverse selection
2022, Journal of Mathematical EconomicsConstrained efficient equilibria in selection markets with continuous types
2020, Journal of Public EconomicsCitation Excerpt :Instead, the MWS equilibrium concept resolves the tension in favor of the second competitive force, yielding market equilibria which are constrained efficient but (may) involve cross subsidies across contracts.23 Concepts in both veins have been widely employed for studying competitive markets with adverse selection in markets with small, finite type spaces (including Hoy (1982), Crocker and Snow (1985), Puelz and Snow (1994), Crocker and Snow (2008), Finkelstein et al. (2009), and Mimra and Wambach (2019b) for the MWS concept, and Besanko and Thakor (1987), Landers et al. (1996), Newhouse (1996), Inderst (2005), Handel et al. (2015), Boyer and Peter (2020), and Mimra and Wambach (2019b) for the AG/Riley concept). But adjudicating which concept is appropriate for empirical applications, and in what circumstances, calls for tractable models with richer type spaces.
Optimal ex post risk adjustment in markets with adverse selection
2019, Journal of Mathematical EconomicsCitation Excerpt :Second, the set of efficient allocations is potentially large. For instance, in the simple two-by-two insurance market studied in Rothschild and Stiglitz (1976), in which there are two possible states (accident and no accident) and two possible types (high risk and low risk), the set of efficient allocations as characterised in Crocker and Snow (1985) consists of a continuum of allocations. Some allocations involve cross-subsidies and, hence, are vulnerable to risk selection.
The effects of redistributive taxation in credit markets with adverse selection
2019, Economics LettersCitation Excerpt :I examine the effect of a simple budget-balanced, tax-subsidy scheme on equilibrium investment and welfare. The tax-subsidy system is similar to that analysed in Wilson (1977), Dahlby (1981) and Crocker and Snow (1985a, b) in the stylised insurance market of Rothschild and Stiglitz (1976), and, more recently, in Ghatak et al. (2007) and Scheuer (2013) in a credit market.2 Every entrepreneur pays a specific tax if she succeeds; this tax is redistributed as a lump-sum subsidy, which can be pledged as collateral if an entrepreneur fails.
Screening with convex menus and optimal flow taxation
2019, Journal of Public EconomicsCitation Excerpt :In that context, he shows that the constrained optimal provision of annuities features both types being distorted away from first best (full insurance), e.g., with both types facing a front-loaded consumption stream. This is in contrast to constrained efficiency in standard insurance screening models (viz Crocker and Snow, 1985), which feature an “undistorted” full insurance allocation for one of the types (typically the high-risk type). Note the analogy with the tax results discussed in Section 3: standard optimal taxes feature “no distortion at the top”, i.e., 0 top marginal tax rates, while optimal taxes with convex menus feature strictly positive marginal tax rates at the top.
Welfare analysis in insurance markets
2024, GENEVA Risk and Insurance Review
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The authors wish to thank Maxim Engers and members of the Microeconomics Workshop of the University of Virginia for helpful comments on an earlier version of this paper.